You have found the perfect business idea, and now you are ready to take the next step. There is more to starting a business than just registering it with the state. We have put together this simple step guide to starting your mushroom farm. These steps will ensure that your new business is well planned out, registered properly and legally compliant.
STEP 1: Plan your Business
A clear plan is essential for success as an entrepreneur. It will help you map out the specifics of your business and discover some unknowns. A few important topics to consider are:
- What are the startup and ongoing costs?
- Who is your target market?
- How long it will take you to break even?
- What will you name your business?
Luckily we have done a lot of this research for you.
What are the costs involved in opening a mushroom farm?
The startup expenses for a mushroom farm are minimal.
Business owners need a space for growing mushrooms. This doesn’t need to be a large space -- 500 square feet is big enough to grow 12,000 pounds of mushrooms a year, according to Profitable Plants. Business owners should be able to control the temperature, humidity, and light in the space, though.
Many business owners already have a space in their home that meets these requirements. Those that don’t might only have to purchase a space heater, humidifier, or dehumidifier.
The other main upfront costs are buying growing medium and spores, but these are both inexpensive. Straw, cardboard used coffee grounds and many other cheap materials can serve as growing mediums. Mushroom spores can be purchased for just a few dollars. Spore Trading Post sells 100 plugs of spores for $18.95.
What are the ongoing expenses for a mushroom farm?
The ongoing expenses for a mushroom farm business are minimal. They include new growing material, additional spores, and utility costs.
Who is the target market?
A mushroom farm business’ ideal customer is a restaurant that focuses on using locally sourced ingredients. A restaurant will have regular orders that provide stable income. A restaurant that focuses on serving locally sourced foods will be less likely to purchase their mushrooms from a large supplier that’s in another state.
How does a mushroom farm make money?
A mushroom farm makes money by selling harvested mushrooms. Mushrooms might be sold by the pint, quart, or pound.
How much can you charge customers?
Specialty mushrooms typically retail for $16 per pound. Oyster mushrooms wholesale for between $6 and $8 per pound, and other types of specialty mushrooms have similar wholesale prices.
Because most people don’t want to spend $16 on mushrooms, retail sales are usually done by the pint or quarter-pound. Wholesale transactions normally are by the pound.
How much profit can a mushroom farm make?
A mushroom farm business that grows 12,000 pounds of mushrooms and only sells to wholesale clients could make between $72,000 and $96,000 annually. Selling retail in addition to wholesale would significantly increase the business’ revenue. Since the ongoing expenses are minimal, most of this revenue would be profit.
How can you make your business more profitable?
Many mushroom farm businesses add a revenue stream by assembling grow-your-own mushroom kits. These may be in cardboard boxes, logs or some other medium. Offering classes on growing or using mushrooms is another way to increase revenue and profits.
What will you name your business?
Choosing the right name is very important. We recommend checking if the business name you choose is available as a web domain and securing it early so no one else can take it.
STEP 2: Form a legal entity
Establishing a legal business entity such as an LLC prevents you from being personally liable if your mushroom farm is sued. There are many business structures to choose from including: Corporations, LLC's, and DBA's.
You should also consider using a registered agent service to help protect your privacy and stay compliant.
For most small businesses forming an LLC is a great option, but if you still want to weigh all your options check our our article, What Structure Should I Choose for My Business?
STEP 3: Register for taxes
You will need to register for a variety of state and federal taxes before you can open for business.
In order to register for taxes you will need to apply for an EIN. It's really easy and free!
You can acquire your EIN for free through the IRS website, via fax, or by mail. If you would like to learn more about EINs and how they can benefit your LLC, read our article, What is an EIN?.
STEP 4: Open a business bank account & credit card
Using dedicated business banking and credit accounts is essential for personal asset protection.
When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your business is sued. In business law, this is referred to as piercing your corporate veil.
Open a business bank account
- This separates your personal assets from your company's assets, which is necessary for personal asset protection.
- It also makes accounting and tax filing easier.
Get a business credit card
- This helps you separate personal and business expenses by putting your business' expenses all in one place.
- It also builds your company's credit history, which can be useful to raise money and investment later on.
STEP 5: Set up business accounting
Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.
STEP 6: Obtain necessary permits and licenses
Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.
State & Local Business Licensing Requirements
Certain state permits and licenses may be needed to operate a mushroom farm. Learn more about licensing requirements in your state by visiting SBA’s reference to state licenses and permits.
Most businesses are required to collect sales tax on the goods or services they provide. To learn more about how sales tax will affect your business, read our article, Sales Tax for Small Businesses.
In business where services are provided on an extended basis, a services contract is often put in place outlining terms and conditions of service.
Mushroom farming businesses should require clients to sign a services agreement before starting a new project. This agreement should clarify client expectations and minimize risk of legal disputes by setting out payment terms and conditions, and service level expectations. An example of a service contract can be found here.
Labor safety requirements
It is important to comply with all Occupational Safety and Health Administration requirements.
Relevant requirements include:
- Employee injury report
- Safety signage
STEP 7: Get Business Insurance
Insurance is highly recommended for all business owners. If you hire employees, workers compensation insurance may be a legal requirement in your state.
STEP 8: Define your brand
Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.
How to promote & market a mushroom farm
One of the most effective ways to promote a mushroom farm business is through in-person interactions. Talking to potential customers, whether they’re consumers, grocery store owners, or chefs, is the best way for business owners to educate customers and share their passion for mushrooms. Business owners can create opportunities to connect with potential customers by selling mushrooms at farmers’ markets and making sales calls to businesses.
Recommended: Get started with local advertising for your business with a $300 credit from Yelp.
How to keep customers coming back
Mushroom farm businesses can keep customers coming back for more mushrooms by helping them discover more ways to use mushrooms. This may include sharing recipes or introducing mushrooms as a healthy snack. The more customers use mushrooms, the more frequently they’ll need to purchase the fungi.
STEP 9: Establish your Web Presence
A business website allows customers to learn more about your company and the products or services you offer. You can also use social media to attract new clients or customers.
Start A Mushroom Farm In Your State
Select your state below for an in-depth guide on completing each of these steps in your home state.
Anyone who enjoys working with their hands and interacting with people may be well-suited for running a mushroom farm business. Growing mushrooms is a hands-on task, and having an ability to connect with people can help business owners share their product with potential customers.
A mushroom farm can be started as a part-time business while working another job. Mushrooms require a little attention each day, but they aren’t too demanding, and they can be tended to at any time of the day or night. It’s easy to fit growing mushrooms around other obligations.
What happens during a typical day at a mushroom farm?
The process of actually growing mushrooms involves three steps:
- preparing growing medium, which takes a few hours and should be done once per week
- misting growing mushrooms, which takes a few minutes and must be done daily
- harvesting mature mushrooms, which takes a few minutes and should be done every day or two
In addition to these tasks, mushroom farm business owners also must find customers, package harvested mushrooms, and deliver mushrooms.
What are some skills and experiences that will help you build a successful mushroom farm?
In order to run a mushroom farm, business owners must know how to grow mushrooms. Many companies offer courses and seminars on growing these fungi. For instance, Fungi for the People offers a week-long course every few months, and Radical Mycology has courses in many different states. Additionally, both Mushroom Mountain and The Mushroom Growers’ Newsletter maintain lists of upcoming conferences and educational events.
Finally, many books about growing mushrooms and starting a mushroom business are available. A few titles include Organic Mushroom Farming and Mycoremediation, Growing Mushrooms for Profit and Starting a Mushroom Growing Business on a Shoestring. Some of these books provide valuable insights into growing mushrooms commercially, while others are helpful resources that can be consulted after a class is over.
What is the growth potential for a mushroom farm?
A mushroom farm business may be a small, one-person operation, or it might grow into a large company that has multiple locations. Detroit Mushroom Factory, which is run by just two people, is an example of a small mushroom farm. Ostrom’s is a much larger company that has customers located throughout the Northwest United States.
TRUiC's YouTube Channel
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One of the greatest resources an entrepreneur can have is quality mentorship. As you start planning your business, connect with a free business resource near you to get the help you need.
Having a support network in place to turn to during tough times is a major factor of success for new business owners.
What are some insider tips for jump starting a mushroom farm?
While mushrooms are generally easy to grow, some types are easier to grow than others. Heather of Mommypotamus recommends starting with oyster mushrooms, which are the easiest to grow, and then progressing to shiitake mushrooms, which are the next-easiest. From this point, business owners can slowly progress into more challenging kinds.
How and when to build a team
Many mushroom farm businesses are run by just one or two people. Mushroom farms that hire employees usually don’t do so until their revenue supports an employee’s salary.